Envestnet|Yodlee is facing a legal challenge from a former fintech partner that claims the aggregator stole its propriety technology and trade secrets.
FinancialApps is suing for fraud and misappropriation of trade secrets, among others claims, after a partnership between the two firms soured earlier this year, according to a complaint filed in a district court in Delaware. Envestnet is alleged to have entered an agreement to develop a platform with FinApps, then tried to replicate software to compete with the FinApps product, according to the 80-page complaint. FinApps also claims it possesses emails in which top Yodlee employees discuss “reverse engineering” the firm’s proprietary technology.
“They were making misrepresentations in all directions,” said Marc Kasowitz, a personal attorney for President Donald Trump, who is representing FinApps. “Both to FinApps claiming to be working pursuant to the agreement, and meanwhile, telling customers it was their own technology. It’s a pattern of misrepresentation that proves they were engaging in the alleged activity.”
Envestnet would not comment on the pending litigation, a spokeswoman said in a statement.
“However, we hold ourselves to the highest ethical standards with regard to business dealings with customers, partners, and employees, and we will respond appropriately through the proper legal channels,” she said.
FinApps was founded in 2014 and says it spent tens of millions of dollars to develop the technology, according to the complaint. The platform lets financial institutions provide data analysis and credit reports to facilitate consumer requests for credit, loans, mortgages and other types of financing.
Envestnet has risen to the top of the turnkey asset management marketplace in large part by its $660 million acquisition of the data aggregator Yodlee.
Legal experts suggest the FinApps’ case has some drawbacks.
For example, the fact that there are no breach of contract claims suggests FinApp can’t allege a specific breach and is instead pointing to alleged statements made outside of the agreement’s contracts, said David Leit, a New York-based partner at the law firm Lowenstein Sandler.
However, Leit said most contracts almost certainly have provisions that make clear that no agreement is relying upon any statements made outside of the contract.
“The problem with these kinds of cases is that you have to prove that the defendant was lying or defrauding at the time they started working with the plaintiff,” Leit said. “If the defendant can show that either it never made such promises, or that whatever promises it made at the time were genuine, that is a strong defense.”
Another issue with the claim is proving what constitutes a trade secret, Leit said. “The formula for Coke may be a trade secret, but if I come up with my own formulation for a drink that tastes just like Coke, that isn’t trade secret misappropriation,” he said.
However, that FinApps allegedly provided code — and was subsequently asked to provide additional code — could mean FinApps could have a decent case, says H. Jonathan Redway, an intellectual property lawyer at the law firm Dickinson Wright.
“It’s not like a case where the defendant was not given anything and went in and figured the trade secrets out for themselves,” Redway said. “What they were allegedly given was part of the trade secret. Code can definitely be a trade secret.”
FinApps will have to show they have a trade secret and that they shared it for purposes of the transaction and the transaction never happened, Redway said.
“You never know until the case is done,” Redway says. “I certainly wouldn’t dismiss it.”
The fintech’s hiring of Kasowitz as counsel is also a potential sign that FinApps is following a strategy to “bet the company,” Leit said.
Kasowitz defended Trump against sexual misconduct allegations during the 2016 election campaign and remained a member of his legal team until 2017.
“Kasowitz is certainly known as a very aggressive, leave no stone unturned, type of litigator,” Leit said.